Russia Once Again Averted Default

Many countries imposed sanctions on Russia after it attacked Ukraine. The country is trying to cope with numerous problems. In spite of challenges, it continues to meet its obligations. Russia’s coupon payment on a sovereign bond maturing in 2029 was processed by correspondent bank JPMorgan Chase & Co a source said on the first day of the week. 

The country had been due to make a $66 million payment to bondholders on Monday on the bond. Russia avoided default for the second time. 

Last week, the country paid interest due on two sovereign bonds, easing doubts about its willingness and ability to honor the external debt. Making the payment meant the country averted its first default since a 1998 financial crisis. Russia also avoided its first default on international bonds since the 1917 revolution. 

JPMorgan Chase worked on Monday with the U.S. Treasury Department on necessary approvals, the source familiar with the topic said. Russia’s coupon payment moved on to the next step before the money is handed over to bondholders. 

Russia and its obligations

Last week, the same bank processed the payment as a correspondent bank and handed it to Citigroup Inc. It acted as the payment agent. Citigroup distributed the funds to bondholders. 

The country has 14 international bonds outstanding with a face value of $40 billion. Before the war in Ukraine, roughly $20 billion was held by investment funds and money managers outside Russia. 

Russia’s next test is a $102 million payment on March 28. The country’s biggest payment of the year – and its first full repayment of “principal” of $2 billion – is due on April 4.

Even if the country is willing to pay, there may be complications in the future, after a temporary license issued by the U.S. Office of Foreign Assets Control expires on May 25.

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